Q. If I take $40,000 for 15 years from TSP, using the calculator it shows that at the end of the 15 years, I would be paying $45,000. What happens if I pay it off in a year (for example, I come into some money, sell an investment property). Do I still pay that $5,000 in unpaid interest, or is the interest re-amortized to the current date of payoff?
Basically, I need some extra money for a down payment on a new primary residence. If I take the loan over the 15 years, it is a very low payment ($112 pp — much more affordable than a shorter date), but $5,000 in interest.
This idea came because my investment property has been taking a long time to sell. If it takes another year or two, and I then have the money to pay off the TSP loan, will I still be in hock for the unpaid $5,000, or does the loan re-amortize to the payoff date (which would only be around $1,000 in interest paid)?
A. The interest is prorated over the time the loan is outstanding.